Impact of the increase in Fuel taxes in Papua New Guinea

The Independent Consumer and Competition Commission (‘ICCC’) has come out to clarify its regulatory oversight over fuel prices in the country, given the new tax for fuel recently introduced in the 2018 National Budget.

ICCC Commissioner and CEO Paulus Ain said: “Currently, the ICCC is only mandated to monitor the prices for Petrol, Diesel, Kerosene and Jet Fuel [petroleum products]. These petroleum products have been declared by the Minister for Treasury as “declared services” for the purpose of the Price Regulation Act.”

Under the Napa Napa Project Agreement between the Government and InterOil (now Puma Energy), it is a requirement that Import Parity Pricing (‘IPP’) must be used for setting retail prices for petroleum products in PNG. As per the Project Agreement, the IPP is the pricing formula that sets the benchmark prices for all refined petroleum products produced at the Napa Napa Refinery as if those products were imported from Singapore.

“Singapore’s refined product prices are the benchmark prices observed by all countries in the AsiaPacific Region, including PNG. The ICCC is not a party to the Project Agreement, hence; it has no say over the pricing arrangements for refined fuel products from Napa Napa. However, the ICCC only monitors and verifies the IPP to ensure that it is in compliance with the Project Agreement.”

Mr. Ain added that in light of the fuel tax changes by the Government, the IPP will not be affected but the overall retail price or the IRP will increase.

“The Government has approved for an increase in the excise duty for diesel from 10 toea per litre to 23 toea per litre, which will come into effective from 1st January, 2018. Due to the increase in excise, Government taxes [excise duty and GST] on diesel will account for 17.8% of the final retail price for diesel in 2018, which is an increase from 13.1% in 2017.”

According to ICCC’s calculation, the increase in excise duty for diesel alone from 10 to 23 toea per litre will increase the final retail prices for diesel by approximately 5.75% in 2018.

Mr. Ain said the new import duties of 10 toea per litre for both diesel and petrol will not be reflected in the final retail prices because they are not part of the IPP formula, which was agreed upon between InterOil (now Puma Energy) and the Government in the Project Agreement.

“Fuel importers will have to absorb the import duties in their margins. Therefore to avoid paying the import duty, fuel importers are encouraged to source fuel from Puma’s Napa Napa Fuel Refinery.”

The increase in the excise duty will likely have a cumulative effect on general inflation in 2018. Prices of goods and services will likely increase in 2018 as transport costs, amongst other costs, of providing these goods and services are likely to increase due to increase in fuel costs.

Mr. Ain said that as a responsible regulator, the Commission is urging all Papua New Guineas to prepare for these new changes by the Government, and cut back on wasteful spending.

“The ICCC has no control over the introduction of new fuel taxes. This is the prerogative of the Government of PNG.”